Lack of Network Effect Weakened Groupon's Q2; Creates Uncertainty in the Future; Lowering FVE

Groupon posted another disappointing quarter, missing on the top and bottom line with respect to the FactSet consensus estimates as the app’s user count and purchase frequency declined year over year. Additionally, the firm pulled its full-year 2023 guidance given the revenue growth uncertainty. There were some bright spots including higher gross profit generated per customer than in 2021. However, given the lack of moat sources, the network effect and switching costs, to help a return to consistent revenue growth, Groupon needs to be more aggressive on the marketing side and increase efforts to improve user experience on the app going forward. Both of these initiatives will result in mere single-digit revenue growth and limited margin expansion. While management is taking that route, execution and timeliness of the plan remain very uncertain. We adjusted our projections lower, resulting in a $29 fair value estimate down from $38.